Its namesake may have had the House of Medici and the Holy See, but as the long-in-tooth Nuclear Renaissance edges closer to put-up-or-shut-up time in the US, it is making one more run — and a very big one — at its more plebeian underwriter: the American taxpayer. The assault vehicle is an amorphous financial guarantee provision in the Senate energy bill creating a Clean Energy Deployment Administration along the lines of Jimmy Carter’s short-lived Synthetic Fools Fuels Corporation.

For the past decade, the nuclear industry has reaped considerable benefit among policy elites by re-framing the swarm of issues which buzz around its future into the singular humanist query: doesn’t the threat of accelerated global warming compel a technological open-mindedness and a rational consideration of alternatives rather than the emotional reaction to over-hyped fears spread among an earlier generation by a mediocre movie for which Jane Fonda was nominated, but did not win, the Academy Award?

Some flies you can defer swatting (permanent waste disposal); some you can shoo away (safety); some you can dismiss (cooling water); some you can ignore (proliferation) — but there comes a day in the life of every proposed nuclear project when somebody’s got to invest. Big bucks. That fly bites.

An impressive arsenal of data from the currently operating 104 reactors shows nuclear to be a reliable, low-cost provider of electricity. But the industry has been blithely uninhibited from concealing the misleading survivorship bias in such numbers — according to the US Nuclear Regulatory Commission, of the 253 units originally ordered by American utilities, 71 were canceled before construction, 50 were abandoned during construction, and 28 were permanently closed before their operating licenses expired. So while you can fool some of the people some of the time, a talent like Bernie Madoff probably only comes along once a generation.

Wall Street has been hip to this jive since the WPPS-Seabrook-Shoreham fiascoes, and using increasingly strident language to make itself clear. Even in the halcyon financial markets of 2007, the six then most prominent investment banks (two of which no longer exist, one of which is now 36% owned by the US government) formally notified DOE that government loan guarantees would have to apply to 100% of all debt in order for new nuclear projects to access the capital markets:

Lenders and investors in the fixed income markets will be acutely concerned about a number of political, regulatory and litigation-related risks that are unique to nuclear power, including the possibility of delays in commercial operation of a completed plant or ‘another Shoreham’. We believe these risks, combined with the higher capital costs and longer construction schedules of nuclear plants as compared to other generation facilities, will make lenders unwilling at present to extend long-term credit to such projects in a form that would be commercially viable.

Two months ago the credit rating agency Moody’s Investors Service, a de facto gatekeeper to the US capital markets, still reeling from blistering criticism (and potential legal liability) over its failure to detect the metastasizing sub-prime mortgage crisis, was even less subtle:

Moody’s is considering applying a more negative view for issuers that are actively pursuing new nuclear generation…We view new nuclear generation plans as a ‘bet the farm’ risk for most companies, due to the size of the investment and length of time needed to build a nuclear power facility.

Nor, according to Moody’s, will this assessment change much even with the prospective federal loan guarantees

which will provide a lower-cost source of funding but which will only modestly mitigate increasing business and operating risk profile…

As the Coalition to Do Nothing, now operating under the nom de guerre EnergyCitizens , revs up its own version of astroturf rallies with a launch in Houston next Tuesday, a brief glance at context makes pretty damn clear just how expensive it will be to persuade ordinary Americans that down is up, hot is cold, and Energy Salvation is to be found by staying in bed with fossil fuels.

Just this week, the Wall Street Journal summarized a proprietary research report by investment analyst Sanford C. Bernstein to the effect that the rapidly increasing amounts of wind in the Lone Star State’s generating mix puts downward pressure on costs and “can have a material impact on the price of power.” And that’s not from the Sierra Club, or the Union of Concerned Scientists, or the Obama White House. It’s from one of Wall Street’s most respected research shops.

Bernstein goes on to say, “The growth of wind power in ERCOT over the next three years will markedly lower the consumption of gas and coal by conventional generators.” For a state that’s the largest emitter of GHGs in the US, and which would rank seventh worldwide if it were a separate country — as some think it is — that’s a pretty big deal. But make no mistake, there are some potential losers: Bernstein says Energy Future Holdings (formerly TXU), NRG Energy and PNM Resources are “most at risk” of falling margins in their traditional generation business.

But the Bernstein conclusions were probably no surprise to the 85% of surveyed Texans who told Governor Rick Perry’s pollster last April that Texas should increase the production and use of renewable energy sources like wind and solar. Among the highlights of the survey of 993 Texans, 858 registered voters (margin of error +/- 3.2%, and 3.3% for registered voter subsample):

more than 79%, including 71% of Republicans and 73% of self-identified conservatives, support financial incentives such as loans, subsidies and temporary tax reductions to recruit renewable energy businesses and associated jobs to Texas.

there is a statewide consensus to “require” electric companies to provide a certain percentage of their product from renewable sources such as wind and solar. Support crossed party, racial and gender lines — 86% of Democrats, 59% of Republicans, 89% of Hispanics, 84% of females under the age of 55 and 61% of males over the age of 55.

while respondents said they supported more investment in all forms of renewable energy, 61% felt the state should require a certain percentage of electricity be generated from solar and 53% said they would support such a requirement even if it added $2 to $3 to their monthly bill.

when respondents were asked whether they would pay more up front for energy-efficient appliances if they were able to save money on their electric bill, over 93% said they would do so. Even among lower and middle income residents, 93 % said they would pay more for appliances that would save them money over time.

nearly as many respondents, 87%, say they would support state-required energy efficiency codes and appliance standards for all newly constructed homes and buildings to help reduce electricity consumption.

This wasn’t a push-poll from a group of tree huggers either. The poll was commissioned by the Cynthia and George Mitchell Foundation. That’s George Mitchell of Mitchell Energy fame, the guy who more or less discovered the prolific Barnett Shale and built the Woodlands development north of Houston. He sold Mitchell Energy to Devon Energy in 2002 for a cool $3.5 billion. The pollster is Mike Baselice of Baselice & Assoc. of Austin, who works for Republican Governor Rick Perry.

So, as the EnergyCitizens begin their propaganda campaign, smug in their consultants’ advice that money can conquer the most daunting challenge, they might do well to ponder: who lost Texas?

The latest energy efficiency report by McKinsey, corporate America’s favorite management consultant, was repeatedly sited in last week’s Senate committee hearing on Waxman-Markey. As well it should be. The report concludes that an investment of $520 billion (present value) thru 2020 in cost-effective efficiency improvements in the non-transportation sector would produce an amazing net present value of $1.2 trillion of energy savings. That’s a stunning reduction of 23% of projected end-use demand in 2020, and a 15% annual reduction in GHG emissions below 2005 levels — roughly the entire Waxman-Markey target for 2020.

Regrettably, the discussion of energy efficiency, in the US at least, typically plays more as a poker game between archangels — “I’ll see you one virtue, and raise you two” — than as a medical exam into what retards economic growth. Everyone is in favor of improvement, but failure to act is excused as an understandable human shortcoming akin to a weakness for desserts or inadequate consumption of dietary fiber.

On the other hand, a dead weight loss of $680 billion, nearly 5% of a $14 trillion economy, should prompt concern across the ideological spectrum. Consider the social dislocation and political upheaval caused by today’s recession, the worst since World War II, currently clocking in at a 3.7% decline in GDP.

McKinsey is scrupulous in identifying the structural distortions in the energy end-use markets that create this drag, and the institutional changes necessary to remove it. But again and again the point is made: when properly accounted for, these changes don’t cost money, they save money. A lot of money. Money that can be used for something else.

As Congress staggers into its August recess, and the Coalition to Do Nothing musters its forces, McKinsey & Company — the Marcus Welby of management consultants — confronts every American with the question: how would you treat this tumorous abscess which consumes more economic life-blood than any recession in living memory?

With perhaps less character development arc than Hemingway’s Lieutenant Henry experienced during his time away from the front, several quarters of forced absence from the Green Energy War narrative focuses the mind on how much has changed — and what has stayed the same — in the 11 months since the collapse of the Warner-Lieberman climate legislation in the US Senate.

The headline changes are well-noted: the Obama ascendancy; the global recession; the revival of Keynesian economic intervention; the reduction of the Republican caricature to faith-healers, snake-charmers and xenophobes. But less celebrated circumstances will also shape the US battlefield environment in the months ahead. Among them:

despite the euphoria over the $80 billion of clean energy funding in the Economic Recovery and Reinvestment Act (about 10 % of the total), this is hardly transformative and fiscal constraints as well as channel overload will likely limit further federal spending. The real challenge will be to redirect the flow of private investment.

in an environment where economists ranging from Greenspan to Bernanke to Summers to Krugman have all bemoaned a global savings glut, paying for such a transformation — in the US and abroad — is more a function of mobilization, deployment and financial engineering than austerity, invention or small particle physics.

the Environmental Front, particularly its climate theatre, dominates the interest of policy and media elites in the Green Energy War — sometimes (e.g., biofuels) to the exclusion of all else. The less galvanizing Economic Front and Energy Security Front are embraced only sporadically and opportunistically, though they may have broader resonance with the public. A pragmatic strategy would continuously rebalance munitions across all three.

psychological exhaustion corrodes support of the Green Energy War among the American public just as it does for other open-ended military efforts. Those who find doom-and-gloom about long term prospects an effective political motivator should ruminate on Social Security or Medicare funding issues. Progress is more likely to come in short bursts of terrifying intensity.

slavish devotion to the price mechanism, whether for oil or for carbon, as a sole determinant of policy is destined for severe signal to noise challenges with predictable paralysis of investment. Policymakers simply have no antidote for the havoc caused by price volatility and, to borrow from the President borrowing from the Bible, need to build their house on rock.

while most of the analytic herd assures itself that it can see the next oil supply crunch coming, and NYMEX crude is up nearly 80% from its December lows, there is a growing belief — held by both EIA and Exxon Mobil — that US light duty vehicle demand for gasoline has peaked and may be entering a period of long term decline. Political implications: extremely unclear.

if the dizzying oil price fluctuations of the past year are just another cyclical ride (albeit accelerated) through the Bermuda Triangle of resource constraints, worldwide recession and currency valuation, a more profound secular change may be afoot in US natural gas supplies. Technological advances which have rendered shale deposits commercially accessible have reversed perceptions of a declining American resource base, with production actually growing 11% over the past two years. Ramifications for the electric sector: potentially huge.

And so the fight is rejoined, not without some understandable pre-battle jitters. Henry Waxman continues to delay his markup but declines to alter his Memorial Day deadline for action, prompting consternation in some but anticipation in others aware of his tutelage by the legendary Phil Burton in the dark arts of counting and maneuver. A long, raucous excursion to the sausage factory awaits.

October has not been a particularly uplifting month on the climate front of the Green Energy War. The worldwide financial freeze-up has sent summer soldiers across the globe scurrying for the presumed security of retreat. Even the nominal master of ceremonies of the UN’s Framework Convention on Climate Change puts it flatly: “If industry is in a difficult pass, most sensible governments will be reluctant to impose new costs on them in the form of carbon-emission caps.”

Dispatches from the economic development front of the Green Energy War tell a much different story. A trio of recent reports — from the Center for American Progress, the UN Environment Programme, and the US Conference of Mayors — all trumpet the significant job-creation benefits of redirecting some of the legacy energy system’s enormous payment streams away from fossil addiction to more benign clean energy resources. The economic hydraulics of channeling these revenue flows has long been an unheralded feature in the Green Energy War.

Use of econometric models to make projections about the future is a well-accepted practice among policy advocates. Less common is to use such models to crunch through mountains of historical data to evaluate the effect of past policies. That is the significance of a study released today by David Roland-Holst, an economist at UC Berkeley’s Center for Energy, Resources and Economic Sustainability. Beside projecting the effects of potential future policies, Professor Roland-Holst evaluated the economic impact of three decades of California’s electricity efficiency initiatives — mandatory standards for new buildings and appliances, and utility-managed programs to help their customers save energy.

What did his study find?

cumulative household savings of more than $56 billion in utility bills.

creation of some 1.5 million full-time equivalent jobs, with a total payroll of roughly $45 billion.

much slower growth, though still positive, in jobs in traditional energy supply chains like oil, gas and electric power. For each job foregone in these sectors, however, more than 50 new jobs were created across the state’s diverse economy.

reduced dependence on energy imports, with a greater percentage of household consumption directed to in-state, employment-intensive goods and services, whose supply chains largely lie within the state and have a strong multiplier effect on job creation.

Proselytizing the primacy of environmental values is a longstanding stereotype of the Golden State persona, but sanctimony and triumphalism rarely play well east of the Sierras even in the best of times. Analysts familiar with the famous McKinsey cost curve showing massive economic savings in energy productivity improvements will be unsurprised, but those who believe that looming global recession signals a needed retreat — or at least a temporary cease-fire — in the Green Energy War would do well to review the California historic record.

A surprise announcement last week by Southern California Edison that it plans to adapt its 2009 Renewable Procurement Plan to include feed-in tariff provisions for projects under 20 MW in size could be a game changer.

No other region of California perplexes electricity planners like the sprawling Los Angeles Basin portion of SCE’s service territory, which stretches from the Pacific ocean to the rapidly growing suburbs of San Bernardino, Riverside and Orange counties. The California Energy Commission called attention to the region’s excessive reliance on aging power plants in 2004, and recommended in 2005 that Edison be directed to procure new supplies that would eliminate such dependence by 2012.

Separate developments in three other legal venues have recently tightened the supply/demand vise in the Los Angeles Basin:

the Independent System Operator, California’s transmission grid manager, has remained adamant that grid stability requires that approximately 75% of electric capacity come from within the Basin. The California Public Utilities Commission has adopted this as a binding resource adequacy requirement.

the State Water Resources Control Board, facing a credible threat of litigation by ocean protection activists, has issued a draft rule to phase out use of once-through cooling at power plants in the Basin between 2015 and 2021. This will likely force the retirement of existing plants, but with uncertain prospects for replacement at the same sites.

the South Coast Air Quality Management District was blocked in court from tapping its so-called “priority reserve” to provide reduced cost emission offsets to new power plants it deemed needed, an effort to overcome the high cost and low supply of such offsets in the Basin. The District’s efforts to circumvent the court decision by a last minute amendment to the state budget legislation collapsed last month when revealed on the California Progress web site.

As is now widely understood, California’s outmoded and deeply inadequate transmission grid has delayed the arrival of out-of-Basin renewables until significant upgrades are completed. Nor is it clear what impact, if any, such transmission upgrades will have on the emerging ISO/CPUC local reliability convention that three-quarters of the Basin’s capacity needs be met from within the Basin.

So attention naturally shifts to smaller, distributed generation projects within the Los Angeles Basin that can be quickly connected to the distribution grid. The Rule 21 Working Group spent several years negotiating a streamlined interconnection protocol between utilities and generators. All that has been lacking for commercial success has been the presence of a long-term, creditworthy power purchase contract. A feed-in tariff would change that.

And a fascinating presentation by the solar developer, GreenVolts, at an Energy Commission workshop, applies the CPUC’s cost-effectiveness model to calculate the locational benefits of distribution-connected projects. On average in California, according to GreenVolts, generation connected to the distribution system is at least 35% more valuable than generation connected to the transmission system due to lower line losses and reductions in required infrastructure upgrades. Not to mention the avoidance of the 7-8 year interconnection purgatory the transmission planning process currently requires.

Of course, as with any contractual obligation, the devil is in the details. Considering more than two decades of unrelenting hostility, most distributed generation advocates believe that with Southern California Edison, the devil is at the table. But there’s new management at the holding company. And growing regulatory and legislative pressure for feed-in tariffs. And an undeniable interest in greasing the skids for CPUC approval of the utility’s $875 million entry into the 1-2 MW rooftop photovoltaic business. Plus the need to keep the lights on in the Los Angeles Basin.

As Albert Einstein famously observed, “politics is more difficult than physics.” The US congressional energy debate end-game these next two weeks seems destined to prove this out.

At its core is bipartisan recognition of an inchoate, nationwide, don’t-just-stand-there-do-something groundswell. Where this sudden, tidal upheaval leads in the months ahead is anything but certain. While empiricism and reason may exert some gravitational pull over time, for now the political instinct is to pander.

“Drill, baby, drill” was the guttural chant of the Republican convention, a peculiar adaptation of the “burn, baby, burn” anthem of the 1965 Watts Riots. But even the accomplished wordsmiths crafting lyrics for the warrior princess of Wasilla felt compelled to seek some buffer, disavowing the notion that drilling will solve all of America’s energy problems with a maternal “as if we all didn’t know that already.”

The refusal of the major oil companies to reinvest more of their exceptional profitability — comprised largely of the economic rents conferred on a commodity owner when markets turn its way — into new energy production these past several years fuels much of the divisiveness. According to Rice University’s James A. Baker III Institute for Public Policy, last year the five largest international oil companies plowed about 55 percent of the cash they made from their businesses into stock buybacks and dividends, up from 30 percent in 2000 and just 1 percent in 1993. The percentage they spend to find new supplies has remained flat for years, in the mid-single digits.

This pattern fosters a predictable agitation for a windfall profits tax in the Congress, and an equally predictable counter-argument that too many potential US development opportunities are legally off-limits. Many analysts consider Exxon’s risk averse investment “discipline” to be the template for the other majors. As demonstrated before, accumulating repurchased shares in the corporate treasury provides Exxon a low-cost war chest for future acquisitions in a consolidating industry.

All of which makes enhanced geothermal fascinating territory in the Green Energy War. As described in the comprehensive assessment compiled by MIT, the overlap with the oil and gas industry is considerable:

“Because the process for drilling oil and gas wells is very similar to drilling geothermal wells, it can be assumed that trends in the oil and gas industry will apply to geothermal wells.”

“Additionally, the similarity between oil and gas wells and geothermal wells makes it possible to develop a drilling cost index that can be used to normalize the sparse data on geothermal well costs from the past three decades to current currency values…”

In parallel with development activities in California and northern Nevada in the 1970s and 1980s, geothermal development in the Philippines and Indonesia spurred on the supply and service industries;

“There was continual feedback from these overseas operations because, in many cases, the same companies were involved — notably Unocal Geothermal, Phillips Petroleum (now part of Connoco Phillips), Chevron, and others.”

“The current state of the art in geothermal drilling is essentially that of oil and gas drilling, incorporating engineering solutions to problems that are associated with geothermal environments, i.e., temperature effects on instrumentation, thermal expansion of casing strings, drilling hardness, and lost circulation.”

“(A)s hydrocarbon reserves are depleted, the oil and gas industry is continually being forced to drill to greater depths, exposing equipment to temperatures comparable with those in geothermal wells.”

Irrespective of whether the current shootout in Congress breaks the drill-tax-invest stalemate or bridges the election year fossil vs. renewable polarization, the pace of development of US geothermal resources may provide a good litmus for progress going forward. And for good reason: a virtually ubiquitous resource with abundant potential drilling sites; competitive production expenses with declining cost curves; and considerable need for the innovative prowess in reservoir management and drilling technology the oil and gas industry has relied upon for three decades to squeeze more resource from declining basins.

As the MIT experts concluded:

Using reasonable assumptions regarding how heat would be mined from stimulated EGS reservoirs, we … estimated the extractable portion to exceed 200,000 (exajoules) … or about 2,000 times the annual consumption of primary energy in the United States in 2005. With technology improvements, the economically extractable amount of useful energy could increase by a factor of 10 or more, thus making EGS sustainable for centuries.

A surefire indicator of hubris in American business is the misbegotten belief that success in one enterprise is a predictor of likely success in another, unrelated one. Established companies periodically flirt with this conceit — whether for executive ego gratification, perceived risk diversification, or earnings growth imperative.

The energy industry has generally had an unhappy experience with such corporate cross-dressing, ranging from Pacific Lighting’s foray into retail drugstores, to Mobil’s purchase of Montgomery Ward, to Exxon’s move into word processing machines. None of these ventures ended well.

But a faith in transferable skill sets is the very foundation of the venture capital industry, and arguably much of America’s high tech success over the past thirty years.

So a fusillade of bells and whistles went off last month when Google, the iconic business success story of the past decade, announced that its ongoing search for renewable energy with the potential to be cheaper than coal had landed on the Rodney Dangerfield of all energy sources, geothermal.

The star power generated by Google’s announcement has cast a new spotlight on a 2006 report entitled “The Future of Geothermal Energy”, which was compiled by an 18-member panel of experts assembled by the Massachusetts Institute of Technology. Among the MIT panel’s conclusions:

enhanced geothermal is a 24/7, fully dispatchable baseload generating resource with minimal greenhouse gas and other emissions, small land use footprint per unit of energy generated due to relatively compact above ground equipment, and no storage or back-up power requirement;

geothermal potential is often ignored in national projections of evolving US energy supplies, perhaps because it is associated with high-grade hydrothermal resources near the earth’s surface that have been tapped for decades but are perceived as too few and too limited in their geographic distribution to be of major significance;

a surprisingly modest government RD&D investment of $300 to $400 million, matched by $400 to $700 million of private investment, over a 15-year period to build several plants at different sites could launch a commercialization deployment that would see installed capacity of 100,000 MW by 2050 — roughly 10% of today’s US nameplate generation capacity;

outstanding issues are all related to enhancing the connectivity of the stimulated reservoir to the injection and production well network. “Notably, they are incremental in their scope, requiring extending current knowledge and practical field methods. There are no anticipated ‘showstoppers’ or fundamental constraints that will require new technologies to be discovered and implemented…”

What’s not to like? Well, until a still fruitless change of heart this year, the visionaries in the Bush Administration have attempted to zero out the DOE geothermal budget for the past two fiscal years. As the wildcatter from Wasilla put it last week, “the fact that drilling won’t solve every problem is no excuse to do nothing at all.”

Would he have forsaken his chronicle of the Peloponnesian War in favor of the richer literary ore of California’s Proposition 16? Relive the spectacle of the most outlandish corporate flame-out in ballot box history. Click here for the free ebook, 21 Machetes.

Strategists attempting to gauge the likely scale and scope of Green Energy War initiatives after the clamor of the current election cycle is past may gravitate to the lodestar of gasoline prices. Posted outside every service station in statutorily prescribed type-size, these context-less numerals are the primary navigational aids by which most Americans determine whether energy is a problem or not.

A provocative missive fired off by two well-known climate/energy policy skeptics from the libertarian Cato Institute, Indur Goklany and Jerry Taylor, in the Los Angeles Times two weeks ago veered a bit off course and may end up working contrary to its intended purpose. Their primary conclusion: “(g)asoline is more affordable for American families now than it was in the days of the gas-guzzling muscle cars of the early 1960s.”

The opinion piece was somewhat opaque on data, but clear that its conclusions regarding affordability were based on average per capita disposable income. Goklany had been more descriptive of his methodology and data sources on the Cato blog in July.

The hundreds of comments registered on the web sites of the Los Angeles Times and other newspapers where the Goklany-Taylor piece has appeared followed a predictable course. Most were variations on the you-must-be-crazy theme; many were dismissive of the ideological affiliation of the authors; more than a few pointed out the widely held analytic preference for focusing on median incomes rather than averages, especially given the increasingly skewed distribution of US incomes of the last several decades.

Last week saw some degree of concession. Taylor acknowledged on the Cato blog that median income data for 2007 and 2008 are unavailable to corroborate his conclusion. He reformulated his thesis slightly to “(t)he percent of income we spend on transportation has been remarkably constant over time even though the distance we travel per capita has nearly tripled”, but conveniently excluded 2008 gasoline costs from this calculation. Still, he concluded that “no matter how you slice the (available) data, it tells more or less the same story … the cost of driving is reasonably affordable today relative to what it has been in the past.”

But Taylor was back in the Los Angeles Times blog two days ago talking about “the high price of gasoline at present”.

What to make of all this? Well, there’s the “nation of whiners”/”mental recession” critique put forward by former-Texas-Senator-turned-Swiss-banker Phil Gramm. And, of course, the “figures don’t lie but liars figure” adage usually attributed to Mark Twain. But in a year which has seen declining real wages and an unprecedented destruction in home equity values, it would seem the American middle class is entitled to a certain amount of economic angst even if the Goklany-Taylor assessment is broadly accurate.

Using the early 1960s as a reference point, though, to establish that current gasoline prices are no big deal may carry a different message than intended by the Cato ideologues. The pay-any-price-bear-any-burden era of American aspiration seems to resonate with both sides of today’s presidential campaign, whether the “national greatness” conservatives or the “yes, we can” liberals. After the noise of electioneering dissipates, US national leaders may feel emboldened to escalate efforts in even the toughest theatre of the Green Energy War, the transportation fuels sector.

And one of the green lights will have been inadvertently provided by two libertarian economists.